Fitch Affirms ING U.S., Inc.'s Ratings; Outlook Revised to Positive

(The following statement was released by the rating agency)
CHICAGO, March 06 (Fitch) Fitch Ratings has affirmed the 'BBB'
Issuer Default
Rating (IDR), the 'BBB-' senior debt rating and the 'BB' junior
subordinated
debt rating of ING U.S., Inc. (ING U.S.), as well as the 'A-'
Insurer Financial
Strength (IFS) ratings of the U.S. operating entities. A
complete list of
ratings is provided at the end of this release. The Rating
Outlook for all
ratings has been revised to Positive from Stable.
KEY RATING DRIVERS
The revision in the Outlook reflects the significant improvement
in ING U.S.'s
balance sheet strength as well as improved debt servicing
capacity. Holding
company financial leverage has declined to 24% from 56% at
year-end 2010. Fitch
believes the quality of the company's common equity is better
than peer
averages, with minimal exposure to goodwill and other
intangibles.
Fitch considers the aggregate capitalization of ING U.S.,
including captives, to
be strong for the current rating level. The estimated
consolidated risk-based
capital (RBC) ratio of the company's U.S. insurance subsidiaries
was 504% at
year-end 2013. Fitch expects reported RBC to remain in the
425%-450% range over
the intermediate term driven by improved statutory operating
performance offset
by distributions to the holding company. Fitch views positively
the 2013
contribution of over $1.8 billion of capital to Security Life of
Denver
International to support certain minimum guarantees in its
closed-block variable
annuity products.
Fitch expects statutory dividend capacity will improve in 2014,
since ING U.S.
has been able to transfer amounts out of paid-in capital into
unassigned funds,
thereby creating a positive earned surplus account and ordinary
statutory
dividend capacity. Fitch expects statutory interest coverage to
improve to
approximately 4.5x in 2014, up from 1.4x in 2013. This is in
excess of Fitch's
median ratio guideline for an 'A' rated company of 3x.
Additionally, the company
has $640 million of cash at the holding company level, in excess
of its
intention to hold 24 months of liquidity, or roughly $450
million.
ING U.S.'s ratings also reflect the large scale and solid
business profile in
retirement and individual life markets, improved operating
performance within
its core businesses, and conservative investment portfolio.
Fitch's key rating concerns include the challenges related to
the run-off of ING
U.S.'s large closed-block VA book, particularly in a tail-risk
scenario. Fitch
notes as positive that the company has utilized dynamic and
macro hedging to
mitigate the statutory capital impact associated with changes in
the equity
markets and/or interest rates. However, policyholder behavior
assumptions cannot
be hedged and therefore remain a risk. At year-end 2013, ING
U.S. had $4.1
billion in reserves and capital supporting the closed-block VA
book.
The ratings also recognize the company's above-average reliance
on the capital
markets for excess reserve financing. ING U.S.'s total financing
and commitments
(TFC) ratio of 1.1x is high compared to other peers and is
driven by funding for
XXX and AXXX reserve financing, and to a much lesser extent,
securities lending
agreements.
In 2013, ING U.S. reported an ongoing business adjusted
operating return on
equity (ROE) of 10.3%, up from 8.3% the prior year. Management
remains committed
to improving this metric to 12%-13% by 2016. Fitch believes ING
U.S.'s scalable
business model is positioned well to participate in the
long-term growth of the
retirement savings market. However, Fitch acknowledges that is a
highly
competitive segment of the market.
The majority shareholder of ING U.S. is ING Groep N.V. (ING
Group), a leading
publicly traded global banking and insurance group located in
the Netherlands.
ING Group has an agreement with the Dutch government to sell its
insurance and
investment management operations as part of its repayment for
support that the
company received during the financial crisis. ING Group must
divest more than
50% of ING U.S. by year-end 2014, with the remaining interest
divested by
year-end 2016.
ING U.S.'s remaining parental ties include letter of credit
facilities provided
by ING Bank which have been significantly reduced and replaced
by third party
providers. The remaining facilities are now on an arms-length
basis.
RATING SENSITIVITIES
The key rating triggers that could result in an upgrade include:
-- Continued growth in operating profitability on both a GAAP
and statutory
basis;
--Sustained maintenance of GAAP adjusted operating
earnings-based interest
coverage of more than 8x and statutory interest coverage of more
than 4x;
--Reported RBC above 450%, and financial leverage below 25%;
--Private sale of closed-block book at good value with boost to
capitalization
and reduction in volatility and risk.
The key rating triggers that could result in a downgrade
include:
--A decline in reported RBC below 375%;
--Financial leverage exceeding 30%;
--Significant adverse operating results;
--Further material reserve charges required in its
insurance/variable annuity
books or a significant weakening of distribution channel or
scale advantages.
Fitch has affirmed the following ratings and revised the Rating
Outlooks to
Positive from Stable:
ING U.S., Inc.
--Long-term IDR at 'BBB';
--5.5% senior notes due July 15, 2022 at 'BBB-';
--2.9% senior notes due Feb. 15, 2018 at 'BBB-';
--5.7% senior notes due July 15, 2043 at 'BBB-';
--5.65% fixed-to-floating junior subordinated notes due May 15,
2053 at 'BB'.
ING Life Insurance and Annuity Company
ING USA Annuity and Life Insurance Company
ReliaStar Life Insurance Co.
ReliaStar Life Insurance Company of New York
Security Life of Denver Insurance Company
--IFS at 'A-'.
Equitable of Iowa Companies, Inc.
--Long-term IDR at 'BBB'.
Equitable of Iowa Companies Capital Trust II
--8.424% Trust Preferred Stock at 'BB'.
Contact:
Primary Analyst
Tana M. Higman
Director
+1-312-368-3122
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Secondary Analyst
Andrew Davidson, CFA
Senior Director
+1-312-368-3144
Committee Chairperson
James Auden
Managing Director
+1-312-368-3146
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Email:
brian.bertsch@fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Related Research:
--'Insurance Rating Methodology' (Nov. 13, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
here
Additional Disclosure
Solicitation Status
here
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS
LINK:
here. IN ADDITION,
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DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE
ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS,
CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S
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AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE
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